Despite a disappointing finish to the month, the S&P/ASX 200 Index (ASX: XJO) recorded a 0.5% gain to end it at 5927.8 points.

Unfortunately, not all shares on the index were climbing higher with the market in July. Here’s why these were the worst performing ASX 200 shares during the month:

The AVITA Therapeutics Inc (ASX: AVH) share price was the worst performer on the ASX 200 last month with a 32.5% decline. Investors were selling the regenerative medicine company’s shares following the release of its fourth quarter and full year sales update. For FY 2020, AVITA’s total revenue came in at approximately US$14.32 million. Although this was a 160% increase over FY 2019’s sales, it appears as though investors were expecting an even stronger sales result.

The Adbri Ltd (ASX: ABC) share price wasn’t far behind with a 30.5% decline. The catalyst for this decline was news that Alcoa of Australia will not be renewing its lime supply contract when it expires at the end of June 2021. This agreement has been ongoing for decades and appears to have sparked fears that other customers may switch to lower cost imports as well. The news didn’t go down well with brokers. This was particularly the case with UBS, which downgraded its shares all the way from a buy rating to a sell with a reduced price target of $2.00. The Adbri share price ended the month at $2.21.

The AMP Limited (ASX: AMP) share price was out of form and sank 21.5% lower in July. The majority of this decline came on the final day of the month when the financial services company revealed that the coronavirus had impacted its performance in FY 2020. According to AMP’s first half update, it expects to report underlying profit from retained businesses in the range of $140 million to $150 million. This was below the market’s expectations and driven by market volatility and a credit loss provision in AMP Bank.

The IDP Education Ltd (ASX: IEL) share price was a poor performer and crashed 19.8% lower last month. Investors were selling the shares of the provider of international student placement services and English language testing services due to a spike in coronavirus cases. They appear concerned that this recent spike both at home and globally could impact the company’s performance greatly in FY 2021.

More reading

• These were the best performing shares on the ASX 200 in July
• 5 things to watch on the ASX 200 next week
• These were the best performing shares on the ASX 200 last week
• These were the worst performing shares on the ASX 200 last week
• ASX 200 drops 2%, ASX banks fall, Super Retail jumps

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Avita Medical Limited and Idp Education Pty Ltd. The Motley Fool Australia has recommended Avita Medical Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post These were the worst performing shares on the ASX 200 in July appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/2XiwycS

The COVID-19 pandemic is poised to make the upcoming reporting season one to remember for some time. Since late-March, many companies on the ASX have been pulling their full-year earnings guidance and have been unable to provide assurances to investors. On that note, let’s take a look at 7 ASX shares that I’ll be keeping a close eye on during reporting season.

Afterpay Ltd (ASX: APT)

The Afterpay share price has been a bellwether of overall market enthusiasm during the pandemic. With online shopping and eCommerce platforms thriving during the lockdown period, it will be interesting to see how Afterpay has harnessed the momentum and how the company plans to grow as the overall economy struggles.

BHP Group Ltd (ASX: BHP)

BHP boasts a strong balance sheet and low-cost operations with earnings coming from iron ore, copper and coal. The company recently reported a record-breaking quarterly output of iron ore on the back of robust demand from Chinese steel mills. With iron ore being its biggest money maker, BHP will be one to watch this reporting season, especially for how the company treats its dividend.

Mirvac Group (ASX: MGR)

Mirvac owns and operates a commercial property portfolio that is exposed to office, retail and industrial properties, which, together, account for 59% of group earnings. The coronavirus pandemic has wreaked havoc on retail and other commercial rental incomes so I’ll be keen to find out exactly how Mirvac is going at protecting its income streams.

Flight Centre Travel Group Ltd (ASX: FLT)

The pandemic has created an unprecedented challenge for travel and leisure companies like Flight Centre. The company has completed a $700 million equity raising and reduced its annualised operating expenses by $1.9 billion. With domestic travel looking to have a protracted recovery, reporting season will help reveal the full impact the pandemic has had on Flight Centre and how the company plans to recover.

ResMed Inc (ASX: RMD)

This company has emerged as a leader during the pandemic, which has seen the ResMed share price make stellar gains for the year. The company tripled its ventilator production to more than 52,000 units in order to fulfil an urgent contract from the Australian Government. It will be interesting to see how the company has performed during this period and how it is looking to sustain growth beyond the pandemic.

Kogan.com Ltd (ASX: KGN)

Kogan.com is fast becoming a household name, thanks in part to the coronavirus pandemic. During the lockdown period, Kogan’s active customer base grew to over 2 million, with an additional 126,000 customers being added in May alone. The online retailer also completed a $115 million capital raising in order to accelerate future acquisition opportunities. With the Kogan share price already looking like investors have priced in the company’s recent success, it will be fascinating to see whether Kogan has any upside surprises left to reveal.

Wesfarmers Ltd (ASX: WES)

During the initial lockdown period, many people flocked to complete home improvements and also set up home offices. Wesfarmers owns both Bunnings and Officeworks, which are 2 companies that obviously benefitted from these trends. On the other hand, the company’s Target and K-Mart stores have suffered from reduced foot traffic resulting from lockdowns. 

Should you buy?

With the S&P/ASX200 (ASX: XJO) rallying since the peak of the pandemic, many people have thrown out fundamentals and harnessed the momentum through speculation. As a result, the share prices of many companies on the ASX (in my opinion) have been overinflated, whilst others have also been oversold.

I think this reporting season will no doubt reveal the reality and provide investors with some great opportunities. I think a good exercise for investors would be to compile a watchlist of shares they wish to pay close attention to during reporting season in order to take full advantage of these opportunities when they arise.

More reading

• Here’s how to start investing with $5k
• I would buy ResMed and these ASX blue chip shares in August
• Buy these ASX ETFs for dividends in August
• US tech shares deliver massive results – what does it mean for ASX tech shares?
• 3 top ASX shares to buy and hold for at least a decade

Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool Australia has recommended Flight Centre Travel Group Limited, Kogan.com ltd, and ResMed Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post 7 ASX shares to watch this reporting season appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/2DqJJl4

Once again, a large number of broker notes hit the wires last week. Some of these notes were positive and some were bearish.

Three sell ratings that caught my eye are summarised below. Here’s why top brokers think investors ought to sell these shares next week:

Fortescue Metals Group Limited (ASX: FMG)

According to a note out of Citi, its analysts have retained their sell rating and $11.70 price target on this iron ore producer’s shares following its fourth quarter update. Although the broker has upgraded its estimates to reflect Fortescue’s FY 2021 shipments guidance, it isn’t enough for a change of rating. The broker continues to believe that the market is pricing in a long term iron ore price that is unrealistic. The Fortescue share price ended the week at $17.41.

Orocobre Limited (ASX: ORE)

Analysts at Ord Minnett have downgraded this iron ore producer’s shares to a sell rating with a reduced price target of $2.00. The broker notes that Orocobre has worked very hard with its cost cutting, but this has still not been enough to offset the sharp decline in lithium prices. Ord Minnett also has concerns that costs could rise because of the pandemic. Which, given the oversupply of lithium, could mean another tough 12 months for the company in FY 2021. The Orocobre share price last traded at $2.97.

Reece Ltd (ASX: REH)

Another note out of Citi reveals that its analysts have downgraded this plumbing parts company’s shares to a sell rating with a reduced price target of $8.55. According to the note, Citi is expecting the pandemic to result in tough trading conditions that stifle Reece’s earnings growth over the next couple of years. Particularly given the weakening housing market activity and softening house prices. The Reece share price ended the week at $9.99.

More reading

• These were the best performing shares on the ASX 200 in July
• Here’s how to start investing with $5k
• 3 of the best ASX dividend shares to buy right now
• 3 ASX dividend shares for dependable income
• Reliable ASX dividend shares still exist

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Top brokers name 3 ASX shares to sell next week appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/317MuA1

Although the S&P/ASX 200 Index (ASX: XJO) dropped a disappointing 2% lower on the final day of the month, it still managed to record a gain in July. The benchmark index rose 0.5% to end at 5927.8 points.

While a good number of shares climbed higher last month, some recorded stronger than average gains. Here’s why these were among the best performers on the ASX 200 in July:

The Netwealth Group Ltd (ASX: NWL) share price was the best performer with an impressive 33.9% gain. Investors were buying the investment platform provider’s shares following the release of its quarterly update. At the end of the fourth quarter, Netwealth’s funds under administration (FUA) had climbed to a sizeable $31.5 billion. This means the company grew its FUA by $8.2 billion or 35% during the financial year. Which is all the more impressive when you consider that it recorded a negative market movement of $0.9 billion for the year.

The ALS Ltd (ASX: ALQ) share price was on form and stormed 29.4% higher last month. The catalyst for this appears to be the testing services company’s annual general meeting. That update revealed that it is performing reasonably positively considering the tough trading conditions. One broker that was pleased with its update was Macquarie. Its analysts put an outperform rating and $9.00 price target on ALS’ shares.

The Orocobre Limited (ASX: ORE) share price wasn’t far behind with a surprising 28.6% gain in July. Investors were buying the lithium miner despite the price of the battery making ingredient continuing to weaken. One positive, though, was that the company has cut its costs materially. During the fourth quarter Orocobre achieved its lowest cash cost of sales for 3 years at US$3,920 a tonne. However, with a realised average price of US$3,913 a tonne, it is still making a loss.

The Fortescue Metals Group Limited (ASX: FMG) share price was a very positive performer in July and recorded a 25.7% gain. The iron ore producer’s shares were in demand with investors last month due to a strong iron ore price and the prospect of another bumper profit result in FY 2020. Fortescue doesn’t look likely to disappoint. Late on in the month it released its fourth quarter update and revealed total shipments of 178.2mt. This was ahead of guidance and achieved with a C1 cost of US$12.94 per wet metric tonne. This compares very favourably to its average realised selling price of US$81 a dry metric tonne.

More reading

• These were the worst performing shares on the ASX 200 in July
• Top brokers name 3 ASX shares to sell next week
• 5 things to watch on the ASX 200 next week
• Here’s how to start investing with $5k
• These were the best performing shares on the ASX 200 last week

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Netwealth. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post These were the best performing shares on the ASX 200 in July appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/39KSWRt

Last week was a disappointing one for the S&P/ASX 200 Index (ASX: XJO). A poor finish to the week led to the benchmark index falling 1.6% over the period to 5,927.8 points.

Investors will no doubt be hoping for better next week. Ahead of another eventful week, I thought I would take a look to see what we should be watching out for.

Here are five things to watch next week:

ASX futures flat.

The ASX 200 looks set to have a subdued start to the week. According to the latest SPI futures, the ASX 200 is expected to fall 1 point at the open on Monday. This is despite a positive end to the week on Wall Street on Friday, which saw the Dow Jones rise 0.45%, the S&P 500 push 0.8% higher, and the Nasdaq index jump 1.5%. The latter was supported by the Apple share price, which surged 10% higher after its quarterly update. The tech giant is now the world’s most valuable company.

REA Group results.

The REA Group Limited (ASX: REA) share price will be one to watch on Friday when the property listings giant releases its full year results. According to CommSec, analysts are expecting the company to deliver a full year net profit after tax of $263.12 million. This will be a decline from $295.5 million in FY 2019, which isn’t a bad result all things considered. A final dividend of 51 cents per share is also expected to be declared.

Reserve Bank meeting.

On Tuesday the Reserve Bank of Australia will meet to discuss the cash rate. At present, the market is pricing in a 57% probability of a rate cut to zero at the meeting. While this means a cut is reasonably unlikely, it certainly is in play. Especially given the recent strengthening of the Australian dollar versus the greenback.

BWP results.

Bunnings Warehouse landlord BWP Trust (ASX: BWP) is scheduled to release its full year results on Tuesday. In June the company revealed that it has been collecting rent largely as normal during the pandemic. As a result, it expects to declare a second half distribution of 9.27 cents per unit. This will bring its full year distribution to 18.29 cents per unit, up 1% on the prior financial year. According to CommSec, analysts expect a full year profit of $117 million.

Insurance Australia results.

All eyes will be on the Insurance Australia Group Ltd (ASX: IAG) share price on Friday when it hands in its full year results. According to CommSec, the market is expecting the insurance giant to post a net profit after tax of $444.83 million. Last month the company advised that no final dividend would be declared. It commented: “While IAG recognises many shareholders will be disappointed with no final dividend, it believes it is important to adhere to its long-established dividend payout policy and to maintain a strong capital position in the current uncertain environment.”

More reading

• These were the worst performing shares on the ASX 200 in July
• These were the best performing shares on the ASX 200 in July
• These were the best performing shares on the ASX 200 last week
• These were the worst performing shares on the ASX 200 last week
• ASX 200 drops 2%, ASX banks fall, Super Retail jumps

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post 5 things to watch on the ASX 200 next week appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/33kkgoi

The stock market has a long track record of recovery. Therefore, even though the coronavirus pandemic could cause further challenges for a large number of businesses, the long-term prospects for equity investors could be very positive.

With the world economy also having an encouraging track record of returning to positive growth after recessions, and major economies enacting stimulus packages, the turnaround potential for shares appears to be high.

As such, now could be the right time to buy a diverse range of shares in order to benefit from a recovery after the pandemic.

Stock market track record

It’s easy to look back on previous stock market downturns and fail to appreciate the mood among investors when they were in full swing. For example, a glance at the long-term performance of major indices such as the S&P 500 makes the tech bubble seem like a blip on its path to growth. However, at the time, there were major concerns among investors regarding the outlook for the economy. This caused many stocks to collapse in value, which left many investors with serious losses.

However, equities went on to recover from the tech bubble, and from other declines such as the financial crisis, to post strong returns. Therefore, even though investor sentiment is relatively weak at the present time, and further challenges could yet be ahead in the short run, the prospect of a recovery for stock prices seems to be high. Its track record is very solid, with investors who buy while risks are high having often been among the major beneficiaries during a subsequent recovery.

Economic improvements

Any stock market recovery is often predicated on the prospect of an economic recovery. On this front, the prospects for long-term investors are relatively bright. The world economy may face threats such as geopolitical risks in Europe, and a continued rise in coronavirus cases, but it has always been able to return to positive growth following its recessions.

Certainly, the current recession could be greater than has been experienced for many years. However, confidence among consumers and businesses is likely to recover over time. For long-term investors, this could mean that now is an attractive opportunity to buy shares.

Stimulus packages

The stock market rebound has been aided greatly by fiscal and monetary policy stimulus packages introduced in a variety of major economies. Furthermore, policymakers have made it clear that further stimulus is available should it be required.

This could significantly aid the recovery in equity prices over the coming years from the present pandemic. It may help to provide liquidity to a wide range of businesses, which could help them to survive the short run. It may also encourage asset price growth over the long run, which took place following the financial crisis. This could aid the performance of stock prices, and help you to improve your financial position over the coming years.

More reading

• These were the worst performing shares on the ASX 200 in July
• 7 ASX shares to watch this reporting season
• Top brokers name 3 ASX shares to sell next week
• These were the best performing shares on the ASX 200 in July
• 5 things to watch on the ASX 200 next week

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post 3 reasons why I think the stock market will recover after this pandemic appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/30jf5TA

Investing is like many things in life – the hardest part can be just getting started! If you’re financially organised enough to have some funds to start your investment journey, congratulations! Here are the next steps to building your investment portfolio. 

Roadblocks

Fear and uncertainty are two of the biggest roadblocks that prevent people from taking action to realise their plans. If you knew what the outcome of a decision would be, you would know how to make the decision. But we don’t know what the future holds. 

Investing can be confusing – there are so many options to consider – shares, options, exchange-traded funds (ETFs), bonds…the list goes on. We all want to make optimal choices about how to invest our money. The key is to understand your goals, understand your options and match the two appropriately. 

When we buy a share, we are essentially taking a gamble on the future profitability of a company. We can’t know ahead of time what this will be. What we can do is thoroughly research the company, its market, and the prevailing economic forces to make an informed decision. Then, we can monitor the progress of our investments and any changes in their operating environments. 

Goals and time frames

Share prices fluctuate on a daily basis. Individual share prices react to company-specific factors as well as economy-wide factors. The market as a whole can be volatile. Over time, however, higher risk shares tend to outperform lower risk asset classes such as bonds. Over the last 100 years, ASX shares have, on average, provided a real return (after inflation) of 6%. 

Naturally, there have been times when shares have returned less than than ‘risk-free’ assets. During the GFC (global financial crisis) the S&P/ASX 200 (ASX: XJO) fell more than 53%. This is one of the reasons why investors in ASX shares should have a time horizon of at least around 5 years. Equities are typically a longer-term investment as time helps to mitigate short-term risk and smooth out fluctuations in price and performance. If you’re going to need your capital in the next couple of years, you may be better off choosing a lower risk option like a term deposit. 

Diversification

The price of individual ASX shares moves daily (sometimes dramatically) and often without much notice. But not all ASX share prices move the same way at the same time. By spreading your money across a variety of shares, your overall return will be less volatile. This is known as diversification. Diversifying involves building a portfolio of multiple holdings across different industries and sectors. 

A diversified portfolio will be less exposed to the impact of events affecting a particular company or industry. This leaves the portfolio holder less exposed – if a particular business or sector isn’t performing well, you won’t lose all your money. Some companies in your portfolio may perform better than others, improving overall returns.  

Diversification can occur not just across the share market, but across asset classes. ASX shares are an obvious place to start an investment portfolio, but there are also international shares, government and corporate bonds, and property. The returns on these asset classes are not perfectly correlated so holding a basket of them reduces the overall risk of your portfolio. 

Investments

So where to invest your $5,000? This will depend on what you’re trying to achieve. If you’re looking for long-term capital growth, you may want to consider high growth companies such as Appen Ltd (ASX: APX) and Afterpay Ltd (ASX: APT). If you’re looking to generate income, you will instead look to ASX shares with a track record of paying dividends like Fortescue Metals Group Limited (ASX: FMG) or AGL Energy Limited (ASX: AGL).

To achieve maximum market exposure and sufficient diversification, including some ETFs could be a good option. ETFs are funds which are traded on the stock exchange like ordinary shares. The funds hold assets such as shares, bonds, commodities, or other investments. Because ETFs hold multiple assets and usually charge low management fees, they are a popular choice for diversification. 

The Betashares Australia 200 ETF (ASX: A200) provides exposure to the largest 200 companies listed on the ASX based on market capitalisation. The S&P/ASX 200 (ASX: XJO) changes quarterly as companies’ market capitalisations rise and fall. In the most recent quarterly update, Mesoblast Limited (ASX: MSB), Megaport Ltd (ASX: MP1), Omni Bridgeway Ltd (ASX: OBL), and Perseus Mining Limited (ASX: PRU) joined the index. Estia Health Ltd (ASX: EHE), Jumbo Interactive Ltd (ASX: JIN), Mayne Pharma Group Ltd (ASX: MYX), and Pilbara Minerals Ltd (ASX: PLS) were removed. 

ASX shares you use 

Investors can also find it useful to invest in companies that they are actually a customer of. After all, if you think a company provides a good product or service, others probably will too. Becoming a shareholder in these companies means you stand to receive a portion of the money you spend with a company back in the form of dividends. 

For example, do you shop at Coles Group Ltd (ASX: COL) or Woolworths Group Ltd (ASX: WOW)? Do you buy online at Kogan.com Ltd (ASX: KGN) or Temple & Webster Group Ltd (ASX: TPW)? Do you use buy now, pay later services like those offered by Afterpay or Splitit Ltd (ASX: SPT)? If so, it may be worth investigating the investment potential of these companies. 

International shares

To mix things up a bit, it can be worth adding some international exposure to your portfolio. The VanEck Vectors MSCI World ex Australia Quality ETF (ASX: QUAL) provides exposure to some of the largest listed companies in the world outside of Australia. The fund provides access to 300 international shares in a single trade. Top holdings include Apple Inc, Microsoft Corp, Facebook Inc, Visa Inc, Johnson & Johnson, Alphabet Inc, MasterCard Inc, Procter & Gamble Inc, and Roche Holding AG. 

Foolish takeaway 

Deciding how much of your $5,000 to invest in each option will depend on your risk profile and investment goals. If you are comfortable with more risk, you may devote more funds to growth shares. If you are more risk averse, a more conservative portfolio may be appropriate. 

More reading

• 7 ASX shares to watch this reporting season
• Top brokers name 3 ASX shares to sell next week
• These were the best performing shares on the ASX 200 in July
• 3 of the best ASX dividend shares to buy right now
• 3 ASX dividend shares for dependable income

Kate O’Brien owns shares of Appen Ltd and Mayne Pharma Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends MEGAPORT FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd and Temple & Webster Group Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Jumbo Interactive Limited. The Motley Fool Australia owns shares of and has recommended Jumbo Interactive Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO, Appen Ltd, COLESGROUP DEF SET, and Woolworths Limited. The Motley Fool Australia has recommended Kogan.com ltd, MEGAPORT FPO, and Temple & Webster Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Here’s how to start investing with $5k appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/2Da7D4C

Investing is like many things in life – the hardest part can be just getting started! If you’re financially organised enough to have some funds to start your investment journey, congratulations! Here are the next steps to building your investment portfolio. 

Roadblocks

Fear and uncertainty are two of the biggest roadblocks that prevent people from taking action to realise their plans. If you knew what the outcome of a decision would be, you would know how to make the decision. But we don’t know what the future holds. 

Investing can be confusing – there are so many options to consider – shares, options, exchange-traded funds (ETFs), bonds…the list goes on. We all want to make optimal choices about how to invest our money. The key is to understand your goals, understand your options and match the two appropriately. 

When we buy a share, we are essentially taking a gamble on the future profitability of a company. We can’t know ahead of time what this will be. What we can do is thoroughly research the company, its market, and the prevailing economic forces to make an informed decision. Then, we can monitor the progress of our investments and any changes in their operating environments. 

Goals and time frames

Share prices fluctuate on a daily basis. Individual share prices react to company-specific factors as well as economy-wide factors. The market as a whole can be volatile. Over time, however, higher risk shares tend to outperform lower risk asset classes such as bonds. Over the last 100 years, ASX shares have, on average, provided a real return (after inflation) of 6%. 

Naturally, there have been times when shares have returned less than than ‘risk-free’ assets. During the GFC (global financial crisis) the S&P/ASX 200 (ASX: XJO) fell more than 53%. This is one of the reasons why investors in ASX shares should have a time horizon of at least around 5 years. Equities are typically a longer-term investment as time helps to mitigate short-term risk and smooth out fluctuations in price and performance. If you’re going to need your capital in the next couple of years, you may be better off choosing a lower risk option like a term deposit. 

Diversification

The price of individual ASX shares moves daily (sometimes dramatically) and often without much notice. But not all ASX share prices move the same way at the same time. By spreading your money across a variety of shares, your overall return will be less volatile. This is known as diversification. Diversifying involves building a portfolio of multiple holdings across different industries and sectors. 

A diversified portfolio will be less exposed to the impact of events affecting a particular company or industry. This leaves the portfolio holder less exposed – if a particular business or sector isn’t performing well, you won’t lose all your money. Some companies in your portfolio may perform better than others, improving overall returns.  

Diversification can occur not just across the share market, but across asset classes. ASX shares are an obvious place to start an investment portfolio, but there are also international shares, government and corporate bonds, and property. The returns on these asset classes are not perfectly correlated so holding a basket of them reduces the overall risk of your portfolio. 

Investments

So where to invest your $5,000? This will depend on what you’re trying to achieve. If you’re looking for long-term capital growth, you may want to consider high growth companies such as Appen Ltd (ASX: APX) and Afterpay Ltd (ASX: APT). If you’re looking to generate income, you will instead look to ASX shares with a track record of paying dividends like Fortescue Metals Group Limited (ASX: FMG) or AGL Energy Limited (ASX: AGL).

To achieve maximum market exposure and sufficient diversification, including some ETFs could be a good option. ETFs are funds which are traded on the stock exchange like ordinary shares. The funds hold assets such as shares, bonds, commodities, or other investments. Because ETFs hold multiple assets and usually charge low management fees, they are a popular choice for diversification. 

The Betashares Australia 200 ETF (ASX: A200) provides exposure to the largest 200 companies listed on the ASX based on market capitalisation. The S&P/ASX 200 (ASX: XJO) changes quarterly as companies’ market capitalisations rise and fall. In the most recent quarterly update, Mesoblast Limited (ASX: MSB), Megaport Ltd (ASX: MP1), Omni Bridgeway Ltd (ASX: OBL), and Perseus Mining Limited (ASX: PRU) joined the index. Estia Health Ltd (ASX: EHE), Jumbo Interactive Ltd (ASX: JIN), Mayne Pharma Group Ltd (ASX: MYX), and Pilbara Minerals Ltd (ASX: PLS) were removed. 

ASX shares you use 

Investors can also find it useful to invest in companies that they are actually a customer of. After all, if you think a company provides a good product or service, others probably will too. Becoming a shareholder in these companies means you stand to receive a portion of the money you spend with a company back in the form of dividends. 

For example, do you shop at Coles Group Ltd (ASX: COL) or Woolworths Group Ltd (ASX: WOW)? Do you buy online at Kogan.com Ltd (ASX: KGN) or Temple & Webster Group Ltd (ASX: TPW)? Do you use buy now, pay later services like those offered by Afterpay or Splitit Ltd (ASX: SPT)? If so, it may be worth investigating the investment potential of these companies. 

International shares

To mix things up a bit, it can be worth adding some international exposure to your portfolio. The VanEck Vectors MSCI World ex Australia Quality ETF (ASX: QUAL) provides exposure to some of the largest listed companies in the world outside of Australia. The fund provides access to 300 international shares in a single trade. Top holdings include Apple Inc, Microsoft Corp, Facebook Inc, Visa Inc, Johnson & Johnson, Alphabet Inc, MasterCard Inc, Procter & Gamble Inc, and Roche Holding AG. 

Foolish takeaway 

Deciding how much of your $5,000 to invest in each option will depend on your risk profile and investment goals. If you are comfortable with more risk, you may devote more funds to growth shares. If you are more risk averse, a more conservative portfolio may be appropriate. 

More reading

• Top brokers name 3 ASX shares to sell next week
• These were the best performing shares on the ASX 200 in July
• 3 of the best ASX dividend shares to buy right now
• 3 ASX dividend shares for dependable income
• Is the Woolworths share price in the buy zone?

Kate O’Brien owns shares of Appen Ltd and Mayne Pharma Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends MEGAPORT FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd and Temple & Webster Group Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Jumbo Interactive Limited. The Motley Fool Australia owns shares of and has recommended Jumbo Interactive Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO, Appen Ltd, COLESGROUP DEF SET, and Woolworths Limited. The Motley Fool Australia has recommended Kogan.com ltd, MEGAPORT FPO, and Temple & Webster Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Here’s how to start investing with $5k appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/2Da7D4C